The sharp Reduction on the price of the fresh pork in the supermarkets

Economics ProjectEconomics Project

(End the presentation)

Presented by

Munsang College

Flora Tsang Yin Fong

Eva Lo Cheuk Yee

Sara Choi Ka Yan

Event Introductory03/05/02The supermarkets (Park’ N Shop and Wellcome)reduced the price of the fresh pork sharply,

04/05/02The supermarket asked people to advertise in the wet market.

05/05/02The wet market sellers asked the pork supplier, Ng Fung Hong (五豐行 ) to reduce the wholesales price to them but not succeed.

06/05/02There were no fresh pork supplied in both the wet market and supermarkets.

The Triangular Relationship

The BuyerThe Buyer

The supermarketThe supermarket

The wet marketThe wet market

Please CLICK on either button!Please CLICK on either button!

(Home)

The Supermarkets(The Park’ N Shop)

超市以低於每斤二十二元至二十四元零售價出售豬肉，可能是因減省處理鮮豬程序而令成本下降。一般買手由五豐行購得豬肉後，需要再經兩個程序才到達市民手上，而超市卻可減省有關程序，直接向市民出售豬肉，在成功控制成本的優勢下，才能以較低價格出售。百佳發言人說他們藉減價為消費者提供便宜鮮肉，他們以減低營運成本及提高生產力，務求達到薄利多銷的效果。(The above is quoted from the SingTao Daily)

The Supermarkets(The Park’ N Shop)

1.1. Why could the Park’ N Shop Why could the Park’ N Shop reduce the price of the fresh porkreduce the price of the fresh pork so sharply?so sharply?

Please CLICK on either bubble!Please CLICK on either bubble! (Back to TriangularRelationship)

2.Why long queues are 2.Why long queues are seen in the supermarkets?seen in the supermarkets?

The Supermarkets(The Park’ N Shop) Referring to Question 1

The Park’ N Shop successfully The Park’ N Shop successfully reduces the cost of production reduces the cost of production which could then increase the which could then increase the supply. This causes a decrease in supply. This causes a decrease in the market price and an increase the market price and an increase in the quantity transacted. So the in the quantity transacted. So the total revenue of the supermarket total revenue of the supermarket will either increase or decrease, will either increase or decrease, depending on the elasticity of depending on the elasticity of demand.demand.

S

S’

D

P

P’

Q Q’Loss in RevenueLoss in Revenue

S

S’

D

PP’

Q Q’Gain in RevenueGain in Revenue

The Supermarkets(The Park’ N Shop) Referring to Question 1

What’s the elasticity of Demand for fresh pork?What’s the elasticity of Demand for fresh pork?

As the fresh pork in the wet market and those in the supermarket are close substitutes. Buyer could easily turn to buy the pork from another market when either market is setting a higher price for the pork. So the demand for the fresh pork is elastic.

Conclusion:Conclusion:

Since the demand of the pork is elastic, by increasing the supply of the pork in the supermarket, the percentage decreases in price is less than the percentage increases in the quantity transacted. The total revenue increases.

(Back to bubbles)

The Supermarkets(The Park’ N Shop) Referring to Question 2

As the price of the fresh As the price of the fresh pork in the supermarketpork in the supermarketis set below the is set below the equilibrium price, equilibrium price, quantity supplied is less quantity supplied is less than quantity demanded, than quantity demanded, excess demand occurs. excess demand occurs. Long queues are found Long queues are found in the supermarkets. in the supermarkets.

S

D

Pe

Qe

mkt.price

(Excess Demand)

Qs(Qt)

(Back to bubbles)

The Wet Market Sellers

Please CLICK on either bubble!Please CLICK on either bubble!

(Back to triangular relationship)

1. Why the wet market sellers asked 1. Why the wet market sellers asked Ng Fung Hong (Ng Fung Hong ( 五豐行五豐行 ) to reduce ) to reduce the wholesaling price to them?the wholesaling price to them?

2. Why the wet market sellers request 2. Why the wet market sellers request the supermarket not to reduce the pricethe supermarket not to reduce the priceof the pork so sharply?of the pork so sharply?

The Wet Market SellersReferring to Question 1

The sellers of the wet marThe sellers of the wet market asked Ng Fung Hong tket asked Ng Fung Hong to reduce the wholesaling o reduce the wholesaling price of the pork to reducprice of the pork to reduce their cost directly. By ree their cost directly. By reducing the cost, supply widucing the cost, supply will increase. Then price will ll increase. Then price will decrease and quantity tradecrease and quantity transacted will increase. Thinsacted will increase. This would help the sellers of s would help the sellers of the wet market to competthe wet market to compete with the supermarket. e with the supermarket.

S

S’

D

P

P’

Q Q’

(Back to Bubbles)

The Wet Market SellersReferring to Question 2

The pork in the wet market and theThe pork in the wet market and thepork in the supermarkets are close pork in the supermarkets are close substitutes. When the supermarket substitutes. When the supermarket set the price of the pork at $19, the set the price of the pork at $19, the quantity demanded of the pork in the quantity demanded of the pork in the supermarket will increase which leadssupermarket will increase which leadsto a decrease in the demand of the to a decrease in the demand of the pork in the wet market. This will pork in the wet market. This will decrease the total revenue of the sellerdecrease the total revenue of the sellerin the wet market.in the wet market.

S

D

D’

P

P’

Q’ Q

(Back to Bubbles)

The Choice of the BuyerThe H.K. government doesn’t take any aThe H.K. government doesn’t take any action to affect the free trade of pork withction to affect the free trade of pork within H.K. Therefore the buyer would prefer in H.K. Therefore the buyer would prefer to buy the cheaper & higher quality one. to buy the cheaper & higher quality one. Because of this, Wellcome & Park’n shoBecause of this, Wellcome & Park’n shop set a price lower than the wet market tp set a price lower than the wet market to attract more business. As a result the o attract more business. As a result the buyers tend to buy pork from the two subuyers tend to buy pork from the two supermarkets.permarkets.

PP’

Q Q’

D

As it is cheaper, I’llbuy more!

The Choice of the Buyer

Since the pork sold in the Since the pork sold in the butchers and the one butchers and the one sold in the two super sold in the two super markets are substitutes. markets are substitutes. When the price of pork When the price of pork sold in the super market sold in the super market decreases, the demand decreases, the demand for the pork sold in for the pork sold in butcher decreases.butcher decreases.

S

D

D’

I’ll choose to buy the pork in theSupermarket as it is much cheaper!

Back to triangular Relationship)